Energy contracts reform can bring prices down – if the new PM is tough enough

theguardian.com:

Welcome news: a consensus is emerging around one way to attack energy costs – stop paying sky-high prices for electricity that is generated in the UK by firms whose costs are unaffected by soaring gas prices. We’re talking about nuclear power plants, windfarms, solar projects and biomass facilities, some of which are making fortunes thanks to the UK’s outdated wholesale energy pricing system.

The basic problem, revealed starkly by the crisis, is that electricity in the UK is tied to global gas prices. When the gas price spikes, as now, it has perverse consequences: a nuclear power station is paid as if its input costs had just risen fivefold, when they plainly haven’t. This “clearing price” setup was designed for another age – not one where nuclear and renewables together produce about 60% of electricity in the UK.

One idea to crack the problem in the short term (ie before the government settles on a method to decouple gas and electricity prices, which is the plan) was sketched out here on Tuesday. Academics at the UK Energy Research Centre (UKERC), followed by the consultancy Cornwall Insight, have been pushing the idea of shifting as many UK generators as possible onto contracts for difference, or CfDs.

Under CfDs, the problem of overpayments doesn’t arise: when wholesale prices are above a fixed “strike” price, the projects return cash to be recycled into lowering bills. But the CfD setup has been only been widely used since 2017. Before then, the main system for encouraging investment in renewables was renewable obligation certificates, or ROCs, which are still attached to 40% of UK electricity generation.

Such projects get the wholesale price plus, for instance, one ROC worth at least £50 per megawatt hour. The